#121: Avoided a VC Round Using Royalty-Based Funding With No Equity Dilution – Vince Hsieh

Dec 6, 2024

Vince Hsieh, a two-time entrepreneur and general partner at Cypress Growth Capital, shares insights on royalty-based funding, which he successfully used to grow Geoforce without diluting equity. He compares his experience with previous VC rounds, highlighting how non-dilutive financing accelerated growth and saved millions in equity value. The conversation delves into the nuances of funding options for tech startups, stressing the importance of maintaining ownership while navigating strategic investments and aligning with supportive investors. Vince's journey illustrates innovative approaches to scaling ventures efficiently.

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Intro

00:00 • 2min

Navigating Entrepreneurship Through Consulting and Investment

02:08 • 2min

Integrating Technology for Global Expansion

04:37 • 7min

Navigating Funding Choices: Royalties vs. VC

11:55 • 19min

Understanding Royalty-Based Funding

31:12 • 16min

Innovative Drone Detection: A Case Study in Practical Funding

47:26 • 3min

Funding Strategies for Niche Sectors

50:12 • 14min

Vince Hsieh is a two-time entrepreneur who has started, grown, and sold two industrial tech companies that included software and either an RFID or GPS device in the solutions. His second venture, Geoforce, raised a non-dilutive funding round to accelerate global growth before being successfully acquired by private equity investors LLR Partners in 2019.

Their royalty-based funding round allowed Geoforce to skip a VC funding round, preserving founder equity and fueling their growth. After their acquisition, Vince shares that the founders saved tens of millions of dollars in founder equity value with their non-dilutive funding from Cypress Growth Capital.

Vince eventually joined Cypress as a general partner, working with capital-efficient SaaS founders to help them build more enterprise value. Vince shares how royalty-based funding can be a very useful funding approach in specific situations.

Quote from Vince Hsieh, partner at Cypress Growth Capital

"Skipping a VC found by using non-dilutive funding made a huge difference to us at Geoforce, especially compared to my first startup where we did not have royalty-based funding in the middle from Cypress. We had just venture capital and then eventually sold to private equity.

"So the math of royalty-based funding is amazing because from the time of our funding from Cypress to the time we sold to private equity, our equity, our value more than 10x'd. But we didn't pay back Cyprus anything close to 10X.

"Had we raised several million dollars in VC funding with equity, there would have been easily tens of millions of dollars of difference between having done royalty-based funding and equity funding. And that tens of millions of dollars of difference went into our shareholders' pockets, including the founders and our friends and families who invested earlier."

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Podcast Sponsor – Cypress Growth Capital

This week’s podcast is sponsored by my friends at Cypress Growth Capital. For 15 years, Cypress has provided non-dilutive growth funding to bootstrapped SaaS founders, including many successful founders I’ve interviewed here on this podcast.

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